Correlation Between GM and Ayala
Can any of the company-specific risk be diversified away by investing in both GM and Ayala at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GM and Ayala into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Ayala, you can compare the effects of market volatilities on GM and Ayala and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GM with a short position of Ayala. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Ayala.
Diversification Opportunities for GM and Ayala
Modest diversification
The 3 months correlation between GM and Ayala is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ayala in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ayala and GM is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on General Motors are associated (or correlated) with Ayala. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ayala has no effect on the direction of GM i.e., GM and Ayala go up and down completely randomly.
Pair Corralation between GM and Ayala
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.49 times more return on investment than Ayala. However, GM is 1.49 times more volatile than Ayala. It trades about 0.1 of its potential returns per unit of risk. Ayala is currently generating about 0.13 per unit of risk. If you would invest 4,602 in General Motors on September 12, 2024 and sell it today you would earn a total of 672.00 from holding General Motors or generate 14.6% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
General Motors vs. Ayala
Performance |
Timeline |
General Motors |
Ayala |
GM and Ayala Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and Ayala
The main advantage of trading using opposite GM and Ayala positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Ayala can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ayala will offset losses from the drop in Ayala's long position.The idea behind General Motors and Ayala pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Ayala vs. Arca Continental SAB | Ayala vs. Becle SA de | Ayala vs. Aquagold International | Ayala vs. Morningstar Unconstrained Allocation |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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